(Continued and end from previous post)
[...]
Them Against Us
ANGLO-AMERICAN theory instructs Westerners that economics is a "positive-sum game," from which all can emerge as winners. European history instructs many Germans, Russians, French, and others that economic competition is a form of war. To be strong is much better than to be weak; to give orders is better than to take them. By this logic the way to be strong, to give orders, to have independence and control -- to win -- is to keep in mind the difference between us and them. This perspective comes naturally to Germans when thinking about France, or to Canadians when thinking about the United States, or to Russians or French when thinking about what the Asians did to their economies. It does not come naturally to Americans.
But, again, it comes naturally in the European system. There are more examples from France than from the other countries, because France got there first; Italy, for instance, would love to be just as nationalistic, but under the current balance of power in European economies it doesn't have a chance.
Here are a few ways in which European economies are more nationalistic than ours.
Intra-industry trade. Theory seems to call for international trade to become more specialized by region as time goes on. Coffee and bananas will come from Africa, software editors from the U.S., cars from Japan, wool from New Zealand, and vodka from the Russian potato lands. Each country will develop its own national skill.
In fact just the opposite occurs. Since the end of the Second World War the fastest-growing type of international trade has been "intra-industry" trade. German car companies like Mercedes, Audi, and BMW make cars that are attractive to customers in France, Japan, and America -- but some people in Germany want non-German cars like Ferraris, Toyotas, Volvos, and Fords. Germany also has a very active auto-parts industry. It sells to other auto makers around the world, and its own auto makers buy parts from non-German makers, notably in the United States.
The result is that Germany actively sells automobiles and auto parts to the rest of the world -- and actively buys the same things. This pattern, of sales and purchases within an industry, is intra-industry trade. It is measured on a scale that runs from zero to 100. An intra-industry trade rate of zero means that trade in a certain industry all runs one way: a country only sells or only buys a certain product. (For instance, Saudi Arabia's trade rate for oil sales would be zero.) A rate of 100 means that a country sells exactly as much of a certain product as it buys.
Countries that have very low intra-industry trade rates are typically Third World countries or others with unbalanced economies. The classic banana republic would sell only raw materials and would import nearly all the machinery it used. The intra-industry trade rate in most developed countries is high and steadily rising. Depending on the industry, countries in Western Europe have recently had intra-industry trade rates in the low 60s through the low 80s. The U.S. rates are slightly lower than the European ones, which is not surprising, since the U.S. economy is bigger and less influenced by foreign trade.
Japan does not fit this pattern. First, its overall rate has been unusually low. Edward Lincoln, of the Brookings Institution, in his 1990 book Japan's Unequal Trade, calculated that Japan's overall rate was 25, which was one third the overall rate for France and far below that of any other industrial power. This means in practice that the Japanese economy buys only the goods it simply cannot make: fuel, food, raw materials, and certain advanced products (notably airplanes) in which its industries cannot yet compete.
Second, Japan's rate has rarely risen. For the rest of the developed world intra-industry trade has been the main engine of trade growth during the postwar years. Countries started with different rates, but all the rates went up. Japan's stayed low through most of the postwar era and, according to Edward Lincoln, rose only modestly in the late 1980s, when Japanese manufacturers moved some of their plants overseas. It is not necessary to say that Japan's low rate is wise, unwise, or some mixture: its effect is to divide the world into "us" and "them" production zones, and to keep as many industries as possible in the hands of "us."
Management. The board members of U.S. companies are still mainly American white men, but there are exceptions. For instance, in May of 1992 The Wall Street Journal provided a long list of executives of major American corporations who were born outside the United States. The computer industry is full of people who started in other countries. The magazine world is full of the English.
Most European countries have a far more nationality-conscious policy. It would be inconceivable for a non-German to run one of the major German enterprises. Although it is difficult to find reliable figures for the number of non-French who serve on the boards of directors of major French companies, the number, as best I can determine, is in the single digits. French firms doing business around the world had a much higher proportion of French managers than American firms had of Americans, or Japanese firms had of their own nationalities. [...]
Incoming investment. During the late 1980s Americans debated about the higher levels of foreign investment coming into their country, and whether it was racist to be concerned about investment from Japan rather than, say, from Holland. One answer to this question is that there was more of it from Japan. During the late 1980s Japanese investors overtook the Dutch to hold the second largest amount of U.S. assets. (The leading holders were the British.) In terms of new investments the Japanese were far ahead of everyone else in the late 1980s.
The real reason for the complaint about Japanese investment was that European investment did not seem profoundly foreign. European-owned companies in America were mainly run by Americans. Japanese-owned companies were to a much larger extent run by Japanese. During the 1988 campaign Michael Dukakis made a famous gaffe by denouncing foreign ownership at an auto-parts factory that turned out to be owned by Italian interests. The fact that on his visit he didn't notice that it was foreign-owned pointed up the underlying message: he would never have made that error with Mitsubishi.
Moreover, the British and Dutch economies were wide open for American investment. France's economy was not. Indeed, the share of France's economy that is owned by foreigners is the nation's most distinctive economic trait -- because it is so tiny. Systems for measuring foreign ownership vary, but approximately 10 percent of the U.S. economy is now foreign-owned. For most European nations the foreign-owned share is higher, since the countries are smaller and their economies are more integrated. [Whereas] for Japan the foreign-owned share is about one percent, and is virtually zero in certain crucial industries. The foreign-owned share of North American and European economies has been steadily rising. The foreign-owned share of Japan's economy has fallen for several years -- despite the collapse of prices on the Japanese stock market in the early 1990s, which should theoretically have attracted bargain hunters from overseas. [they had their chance of a lifetime in 1997 though....]
For the first few decades after the Second World War, French laws flatly prohibited foreigners from buying French companies. The handful of foreign companies that are well established in France -- Coca-Cola, IBM -- are the exceptions that prove the rule. For various reasons they were able to grandfather themselves into the system. Their success is usually cited as proof that anyone who tries hard enough can find a way into the French system. But most other companies were forbidden to do the same thing thirty or forty years ago, when it would have been cheap -- and they can't afford to do it now.
[...]
Technology. There is a final point to emphasize about a nationality-conscious business policy: it goes with an aversion to relying on foreigners. This desire for autarky is completely understandable in historical and psychological terms, although it is considered irrational in the realm of economics.
When Germany suddenly became industrialized, in the opening decades of this century, it lost the ability to expand its own economy from its own soil. When its leaders and generals considered making war on France, in the 1910s, what drove them was the fear that they would run out of markets. One nightmare they faced was that their shipping would be cut off and they could be starved out. Today is a very different time -- supplier cartels can be broken, as with OPEC; people who have money, as Germany does, can find markets to buy. Yet much the same mentality runs through many German -- and other European -- approaches to technology. In ways that no economic theory can fully explain, the goal of national policy is to bring control of the technology into German (or French, or Russian) hands -- even if this is irrational, even if it violates the spirit of the borderless world.
European corporations do practice a form of conventional economic competition, but all within their own borders. This is known as the "one-set" philosophy: each big company makes a set of products that includes one of each kind. Each beer maker produces a draft beer, a "dry" beer, a lager, and so on; each electronics company tries to produce a full range of radios, TVs, and fax machines. Successful European students are expected to get top marks in every subject. Economists say that specializing in everything is in principle not possible. But in practice the urge to be on top in every field, rather than concentrating on some and leaving the rest to competitors, is a stronger impulse in European society than in most others.
Americans may complain about the decline of their steel and semiconductor industries -- that is, areas where the United States once enjoyed a lead and has had to watch factories shut their doors. But few Americans really think it is a problem if we have to buy our entire supply of CD players from overseas. The United States has no government project under way to create a domestic fax-machine industry, and when government guidance is proposed -- for semiconductors, HDTVs, and superconductors -- it is always controversial. The European assumption is very different.
[...]
The European emphasis on the EU's "unique" capacity for high-quality manufacturing provides an argument for regional self-sufficiency.
[...]
The preferences of such a system cannot be explained by a desire to a better life -- or to protect consumers. By modern American standards such preferences seem illogical and self-defeating at best, brutally misguided at worst. Yet they are in keeping with the belief, widespread outside the English-speaking world, that inconvenience to consumers is less damaging in the long run than weakness of a nation's productive base. The slowest-growing modern economies, in Western Europe, reflect this view. Like it or not, we live in the world that Asian success stories have shaped. We need to figure out how to compete in it.
Copyright © 1994, The Atlantic Monthly Company. All rights reserved. |
